Journal of Product & Brand Management

Market brand equity: lost in terminology and techniques?

Don Schultz
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Don Schultz , (2016),"Market brand equity: lost in terminology and techniques? ", Journal of Product & Brand Management,
Vol. 25 Iss 6 pp. -
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http://dx.doi.org/10.1108/JPBM-07-2016-1260
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 Market brand equity: lost in terminology and techniques?

I. How It All Started

There are generally two streams of research and study in the broad area of financial brand
value, both falling under the general heading of equity. (This discussion will ignore the oft estimated,
external valuation of the brand by groups such as Interbrand (Interbrand 2016) Brand Finance (Brand
Finance 2016) and the like. The two areas on which this paper will focus are (a) the value of the brand
to the consumer, commonly referred to as Customer Brand Equity or CBE and (b) the financial value
accruing to the brand owner, often referred to as Market Brand Equity (MBE). (Ambler 2000; Leone et
al 2006; Franzen and Moriarty 2009; Kapferer 2012). There are, of course a broad array of other terms,
methods and factors to measure or estimate various specific areas of brand value which sometimes fall
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in or between these two broad areas of consideration.

These two terms often seem to be measuring the same thing, yet, they are not. MBE is the
what or financial value of the brand to the organization and CBE is the why or the reasons
consumers or customers or whomever personally value the brand which determines how much they are
willing to pay. The two terms are commonly separated by terminology, research activities,
methodological approaches, and most importantly, at the value level among the two groups. Because
they are both determining value they continue to be confusing and some of the most contentious
definitional issues in brand management.(Leone et al, 2006) . This thought-piece is conceptual and
theoretical, rather than applied and how to- oriented. The paper aims to lead to some new directions
in research, scholarship or understanding.

A. Looking Backward to Enable a Forward View

Much of my interest in brand equity comes from a long harbored belief that most research on
the brand equity, whether it be viewed from the marketer, consumer or other audience perspective has
only scratched the surface of a very complex subject. So, this seems to be my opportunity to speak out
on a topic which appears to have been constrained by limited and often not very relevant research, are
commonly structured and structured conceptual thinking and contained embedded industry practices.

What I continue to see in the literature, particularly that which attempts to measure levels of
the brand owners market brand equity, is repetition, that is, scholars plowing the same ground, over
and over, planting the same limited number of conceptual seeds and reaping the same results from
which the same results are proclaimed, simply using different terminologies. And, even if the research
techniques and approaches are changed, all we seem to get is a more granular view of the same subject.
In essence, the study and understanding of market brand equity seems to be constrained by ever more
narrow thinking and restricted by increasing mountains of historical research. Nothing new ever seems
to emerge nor are any new pathways being developed or explored. And, all this is occurring in an era
where technology is exploding, firms are awash in new data, new forms of communication and financial
acumen seem to be emerging every day and new research fields are springing up everywhere.

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 Unfortunately, our thinking seems to be driven by the past, not by the future. So, what follows
is an attempt to cut through the increasing jungle of concepts, methodologies and approaches which
seem to be creating more clutter than clarity.

B. Parallel, But Not on Quite the Same Track

What creates much of the overall brand equity confusion is that the two concepts, i.e., the
brand-owners market brand equity (MBE) and consumers internally created consumer brand equity
(CBE) views are moving along parallel but not equal or equivalent tracks. (Leone et al, 2006, Ambler et
al, 2000)

The exhibit below shows the difference.

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[Exhibit 1 Goes About Here]

Branded Business Illustration

As shown above, the sum total of the brand to all owners and those who have an interest is
summarized as Branded Business Value. In other words, what the brand is worth to both the brand
owner and the brand user/buyer. While this total value is practically never used, it still conceptually a
summary of all the value the brand contains or can create for all those involved. Generally, this is what
brand valuation firms are trying to estimate or determine for purposes of brand mergers or acquisitions.

The total value of the brand to the firm is commonly termed the brand equity, that is the total
value of the brand to the firm after deducting any debt or other encumbrances. That is composed of
two parts as shown above. Those are: (a) the CBE or the value the customer places on the brand in
terms of its influence on their current and future purchases and (b) market brand equity or the value of
the brand in terms of generating current and future income flows to the brand owner. It is because
these two elements, CBE and MBE are so different yet both are trying to determine some level of
marketplace value for the manager that they often become confused and confusing.

This paper is devoted to the determination and measurement of market brand equity or better
said, the value of the branded business. That is the primary concern of the brand owner.

The other confusing problem is that brand equity, whether it be market or consumer is also
being expanded in terms of audiences and players. Today, distributors, employees, investors, bloggers,
social mavens and the like seemingly have as much or more influence on all the financial forms of brand
equity value (both MBE and CBE) than they have had in the past. (Booth & Matic 2011; Kim & Ko 2012;
Chu & Kamal 2008) Thus, our ability to understand and explain the subject of brand equity seemingly
has exploded well beyond its historic boundaries but few new tools or terminologies have been
developed to deal with the challenges.

Indeed, the topic of brand equity may no longer even be within our current capabilities to study
and understand. Thus, simply using the two concepts which have defined the historic field of study may
be too limiting for todays interactive, interconnected, continuously and rapidly changing world. This
paper is, therefore, primarily an attempt to broaden and clarify the thinking on the subject.

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 What I try to do in this paper is consolidate the welter of historical approaches and from that,
step back and try to integrate all the brand equity concepts and approaches into a meaningful whole. By
doing that, I hope to create a framework that is relevant primarily for CEOs and their Boards. I argue
taking this high level view is critical since it is at this most senior level where the approval for brand
funding lies. Since these managers are the ultimate decision makers on brand expenditures, it seems
more critical to help them understand the issues than simply assuming brands will be supported and the
primary managerial issues revolve around allocation of available resources by lower level personnel.
Thus, this is more a managerial manifesto than a how to discussion for brand managers. I deal only
with the financial equity value of the brand to the firm and do not wander off into customer brand
equity which increasingly appears to be more tactical than managerial no matter what its proponents
say.

C. Starting Over
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To accomplish this goal of simplicity and managerial relevance, I ignore much of the current
brand equity literature since it is primarily focused on CBE (customer brand equity) (Keller 1993; Pappu,
Quester & Cooksey 2005), the current hot topic of the marketing and consumer behavior academic
communities. I also ignore many of the traditional economic and accounting brand valuation tools
currently in use as well. (De Chernatony 2010; Kumar & Blomqvist 2004; Madden, Fehle & Fournier
2006) The reason for this decision is that most of the approaches used rely on estimating the historical
value of the brand at one point in time using some form of Return-on-Investment (ROI) to the firm.
That, and those approaches generally have little or no forward-looking value, which is where brand
value exists. In my view, the true value of brand equity is the value the brand is able to create for all
players going forward, that is, the future, not the past. In doing this, I propose a very simple concept
which seems relevant and practical for a world of interactive consumer-brand interactions, many of
which occur in real time and which simply cannot be explained or decomposed using present tools, at
least not in terms of the cost-benefit relationship which the approaches would require.

The argument is also made that many of the current brand valuation methodologies, in spite of
their widespread industry acceptance and use are ill-suited for a marketplace in which actions and
activities have become so intertwined, integrated, immediate and complex that our traditional western
approaches, which attempt to decompose events and activities to try to explain or estimate causality or
even correlations, are simply not adequate and cannot benefit either the current organization, the
consumer or the multitude of brand influencers who inhabit todays marketing landscape. (Hoffman
2010; Burnkrant 1975)

D. Moving on Up

As earlier said, in this paper an attempt is made to move brand equity management activities up
several notches in the organizational hierarchy and develop much more managerial thinking and
analysis than currently exists. In this view, brand equity resides at the level of senior management, even
above the level of Chief Marketing Officer (CMO). In doing so, I argue that brands and brand value are
CEO and Board level decisions since the firms brands are some of its most valuable assets, even though
they are still considered intangibles in current accounting practices and therefore do not appear on the
balance sheet. In fact most brands are not even valued by the owning firm unless they become part of a
merger, sale or acquisition. This is a curious development, however, given that the value of the brand
has become much more important in the past few years based on the acquisition mania that has

3
 occurred in many consumer product companies. (see Kraft acquisition by Heinz (McDermid 2015)
Hillshire Farms acquisition by Tyson Foods, (Tyson Investor Relations 2014) Procter & Gambles
acquisition of Gillette (WSJ 2005) to mention just a few). All have clearly shown that brands and brand
equity at whatever level, are typically the firms most valuable financial assets even though they are
commonly not recognized at the operating level. In short, I take a holistic approach to understanding
and measuring brand equity as it contributes to the overall well-being of the firm. That is clearly a
senior management issue, not one commonly within the purview of the operating manager.

While it is or might be interesting to know what has caused or at least influenced changes in
measurable market or consumer brand equity, the argument made is that until management knows
whether total current brand investments are providing an adequate return to the firm, that is, meeting
the overall requirements or hurdle rate of the organization, knowing which or what element or
activity created that value in the brand portfolio is interesting but essentially not very relevant. (Kerin &
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Sethuraman 1998; Bahadir et al 2008)

E. Complexity Rules

The premise underlying the approach presented is that the brand marketplace has become so
complex that traditional managerial accounting approaches are simply inadequate to explain or help
separate the interactions of the various factors. Thus, what is proposed is a simplistic, integrated, yet,
financially sound approach which senior executives can use to evaluate a brands investment and return
value and its potential ongoing value to the firm. Using that rubric, brand investment decisions, either
positive or negative, can be made at a glance since the proposed management tool provides sufficient
information for rational and reasoned corporate decision-making.

Since this approach strays so much from traditional brand management and brand valuation and
evaluation approaches, some background and rationale is initially provided. It is hoped that the
following sections will provide some balm to the agitation some consumer brand equity advocates may
feel when considering the approach suggested. As before, this paper and methodology are conceptual
and theoretical, thus, I do not try to support them with illustrations or complex statistical formulae. The
approach is, however, based on my more than 40 years experience in both academia and professional
brand leadership and stewardship. That includes several books on brands, branding and brand
valuation, along with 20 or so years spent as an outside director of one of the leading global brand
valuation firms.

In summary, what follows is what has been ruminating in my mind for both the academic and
professional brand equity communities for some time. Therefore, donning my cloak of academic
respectability and putting on my future glasses to determine what might be done if we could move
away from todays existing constraints, I offer these concepts for consideration. Hopefully, my musings
will attract some forward-thinking people to take up the ideas presented and move them forward.

II. How Brand Equity Research Became So Muddled

To understand where we are today, it is necessary to illustrate how we got here. That will provide a
base for identifying what changes need to be made and what areas need to be developed and
enhanced.

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 A. The Value of Brands and Branding

As before, there are multiple definitions and views of the general topic of brand equity (Keller et
al 2011; Aaker 2009; Wood 2000) and even more in the more distinct fields of MBE and CBE. I will use
the following approach in this manuscript to try to sort the wheat from the chaff in terms of finding a
way forward.

Historically, the value of a brand has been used to reflect ownership or involvement in a product
or service by the owner. By various names, marks, colors, configurations or other devices in, on or near
the product or service being vended, the brand owner hoped to signal to the buyer the additional value
that has been input into the product or service above and beyond that of competitors. (Hill & Lederer
2001; De Chernatony et al 2000) Thus, the use of a brand gave the brand owner some leverage in the
marketplace whether that be distribution, higher margins, protection against competitive inroads or
whatever. Consumers, alternatively, could use the brand as a short-hand way of determining the
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perceived additional value or quality the maker had supplied. (Janiszewski & Osselaer 2000; Grewal et al
1998) Thus, for the buyer the brand signaled who the originator, maker, owner or developer of the
product or service was. That inherent brand value or equity was then transferred to the buyer through
a marketplace exchange process. (Muzellec & Lambkin 2006; Schultz & Bailey 2000) For example, if
Thomas OMalley put his name on a barrel of pickles, he was in effect guaranteeing the quality and
value of the product with his own name. When a consumer bought an OMalley pickle they acquired
all the value the maker had put into the product. This creation and transferring of value whether that
was product quality, prestige, unique ingredient, process, authority or whatever, was in essence
something that was created by the brand owner but transferred to the buyer in the exchange process.
It is this creation and transfer process which seems to have created many of our brand equity
definitional problems and it is the area which seems to have been most neglected in the development of
market brand equity.

As marketers began to realize there was value in these branding activities, they began efforts
to determine the financial value of brand equity believing that a better understanding could help them
better manage the brand for the benefit of the organization. (Simon & Sullivan 1993; Mizik & Jacobson
2008) Clearly, if the financial value of the brand equity could be determined, then financial methods
could be developed which would provide better insights into making investments and generating
returns from the brand. Thus, branding and brand building were inherently developed to benefit the
brand owner, not the brand consumer. (Glynn, Motion & Brodie 2007; Buchanan et al 1999; Ailawadi et
al 2003) The brand owner supposedly reaped most of the value from the brand in the form of equity,
i.e., a positive financial outcome, while the consumer enjoyed those inputted values as a result of the
transfer process.

Having created this differentiated value for which buyers were willing to pay, sellers evolved this
value into a crude form of equity or the additional value or income the brand could generate for the
seller. While there are multiple dictionary definitions of equity,(Dictionary.com) here I take it to mean
the original definition, i.e., the amount or value of a property or properties above the total of liens of
other charges. (Pappu et al 2005; Vazquez et al 2002) In other words, brand equity is the value of the
article to the owner or maker and the additional income and profit it can generate for the seller now
and into the future. (Jones 2005; Rust et al 2004)

5
 It has only been in recent times that this concept has been transitioned or transferred to the
consumer or customer. And, it is this shift of equity meaning, from the brand owner to the brand
manager that has created much of the difficulty in determining brand equity value today. I argue this
shift, driven primarily by academicians and their research and writings is what has created the
definitional confusion which currently exists. (Kalb 2014; Stahl et al 2012; Davis 2002)

B. Here Come the Marketers

In the late 19th and early 20Th centuries, with the advent of mass media, extensive forms of what
we now call advertising were developed. Moving quickly from a highly localized to regional and
eventually a national phenomenon, the practice of advertising grew quickly. (Tungate 2007; Arens 2004)
Having little or no theoretical base, advertisers/marketers did what they had traditionally done,
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borrowed from other disciplines. (Schmalensee 1972; Kaldor 1950; Batra 1996) In this case, they initially
tried to borrow from economics and accounting. Since actual, verifiable sales and consumption data
was almost impossible to obtain in these early days, what emerged as marketing theory was based on
what was available to managers. Since advertising had been established in the marketplace, managers
took that as the base. (Aaker et l 1986; Gatignon 1984; May & Hartshorne 1925) As a result, brand value
in the academic community was based on psychological measures, not on economic and/or sales and/or
profits. Thus, the current focus on the concept of customer brand equity emerged. (Poffenberger
1925; Friestad & Wright 1995; Scott 1916) CBE is nice idea but is one which is extremely difficult to
connect to market brand equity by the brand owner.

Using the psychological bases that had been developed, brand researchers began to develop
models of how they perceived brands worked in the marketplace, all from a buyer or consumers view.
(Fournier 1998; Batra & Sinha 2000) Thus, brand equity in the academic community developed from a
consumer behavior and psychological view, not from a sales or investment and return view. (Keller
2001; Christodoulides & De Chernatony 2010) It is this separation that has created many of the
problems and challenges found in the general field of brand equity today.

The marketing and advertising managers reliance on changes in attitudes, rather than on the
more difficult to obtain behavioral and financial measures has created the morass of what is considered
brand equity. In short, advertising and marketing researchers have driven the direction of brand equity
research away from organizational sales and profits into areas such as changes in consumer perceptions
beliefs, attitudes and the like. (Shimp 1981; Aaker & Keller 1990; Park & Young 1986) While these
measures are and can be valuable in terms of understanding internal consumer feelings and
perceptions, which may or may not eventually evolve into value to the brand owner, they are still most
difficult to connect to actual consumer behaviors in the marketplace. (Holt 2002; Edson 2004)

C. The Development of Consumer Brand Equity Measures

Arguing first that brand perceptions exist primarily in the minds of consumers and
customers,(Trout 1982; Henderson et al 1998) brand marketing academicians and many agencies have
consciously and continuously moved in the direction of defining brands and brand value in terms of how
the consumer views them. While this is not an incorrect approach, given the field as it has been defined

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 by these researchers, it is fraught with problems when the brand owner wants to convert these
attitudinal models into some semblance of understanding of marketplace returns or economic value to
the firm. (Dabholkar 1994; Ajzen & Fishbein 1973) Attitudinal models are notorious for their inability to
provide researchers with relevant connections of attitudinal change to behavioral change, and even less
to financial value.(YOUR W, X cite) The key point, of course, is that it is what consumers do, that is,
their behaviors, which result in marketplace financial returns not just on how they think and feel about
the brand.

Thus, brand and marketing managers are caught on the horns of a dilemma, that is, the
academic consumer brand equity models which have been developed are sophisticated and practically
unchallengeable in their theoretical rigor, but they simply dont answer the questions the brand owner
continues to ask: what financial return will be generated by resources invested in or against my brand
or brands in the marketplace?
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What follows is my suggestion for an approach which starts with the value of the brand to the
brand owner or developer, not the consumer. Thus, this paper argues for a more clear-cut, enhanced
calculation of the actual financial value of the brand to the brand owner or MBE. If that can be done,
then inputs and outputs further down the value chain can be much more easily determined and
transparent. Thus, for this paper, I argue that marketer brand equity can be determined as the result of
additional financial investments in the brand and what that might generate in terms of returns for the
brand owner over and above the costs of conducting those programs. While this seems like an almost
infantile question and solution, it is one which most brand managers cant answer today simply because
they continue to use the wrong tools.

III. Charting a New Direction

It is quite simple to understand why and how the academic community followed the attitudinal
route to brand understanding, valuation and the measurement of CBE. At the time the tools were being
developed, i.e., the early 20th century, there were few if any methods of tracking and measuring the
brand owners returns on financial brand investments. Diffused marketplaces, unidentified and
unidentifiable consumers and customers, disconnected distribution channels, unknown transfer costs
and pricing schemes and a host of similar problems prevented researchers from developing a clear,
accurate and useful measure of the impact of marketing activities on ultimate consumer behaviors. In
short, managers faced a tool shortage, not an intellectual shortage.

With the development of digital data capture and storage, we are on the cusp of developing
radically new methodologies to define and measure the brand owners MBE. If that can be done, then
the addition or overlay of the consumers brand equity (CBE) can likely be used to explain how and why
that level of equity developed in the marketplace. In short, until we know the what about market
brand equity, trying to determine the why seems to be a fruitless effort.

A brief description of one scenario of how a change of view and a change of managerial tools might
occur follows.

A. The New Tools

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 Quite simply technology and new, consolidated brand thinking are providing the new tools needed
to manage and measure MBE. As illustrated in Exhibit 2, the goal is to find a way to measure the value
of the brand to the brand owner so that relevant decisions can be made about investments or support
that can or should be made in the branded business. Thus, at this executive level, we are trying to
determine whether or not it would be beneficial to the brand organization to invest additional funds in
the brand, maintain current investment levels or in some cases, reduce the amount of financial support.
If that basic decision can be made, then all the more advanced methodologies can be brought into play.
We should note here: the investments being considered at the brand business level would include all
the elements and activities that make it possible for the brand owner to develop, produce, distribute,
promote, maintain, re-stage and employ all the other elements needed to create a branded product or
service which can be offered to consumers and the value being transferred through exchange to the
consumer or user. It includes all the traditional brand elements including trademarks, logos, designs and
the like. This aggregated view of the brand is a critical element in this overall MBE valuation model.
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What may be surprising is that this brand owner view of MBE is really how the end user or buyer
views the brand, that is, the brand is a bundle of value or values which provide benefits and rewards
when purchased. That substantially simplifies the understanding of the marketer and consumer views
of brand equity when compared to the current internal approaches which try to break down and value
each and every individual brand element and nuance. In its most basic form it might be considered
what the end user invests to acquire the total value of the brand. It is my belief that it is here, where
the exchange between the buyer and seller occurs, that much of the brand equity confusion occurs.

Viewing the brand at this aggregated level enables us to roll up all the brand elements into one
basis concept and element which can be used at the managerial level. This aggregation is critical to the
future management of the brand from both the organizational and consumer view. The reason for that
is that given the current level of technology, it will soon be possible to conduct that measurement or
evaluation at an individual brand and even an individual consumer/customer level as well. Thus, what is
proposed below is a preliminary, yet fundamental, structural approach which might be used while the
more sophisticated brand management methodologies are being developed.

We start first with the activities and actions required to develop a relevant market brand equity
measurement approach.

1. Focus on what can be measured: Initially, the focus should be on what actions, activities
and approaches can be measured today and which can also be converted into financial
marketplace returns. (Srinivasan et al 2005; Simlon & Sullivan 1993; Netemeyer et al 2004)
In other words, the focus must be on measurable consumer behaviors, not on attitudes,
feelings or other non-quantifiable factors. Thus, for the most part, we will ignore current
CBE activities.
2. Focus only on net cash flows: The lifeblood of any organization and any brand are the cash
flows which that or those brands create. Similarly, the only really critical element in the
functioning of the business and the business unit is the net cash flow created by exchanges
with the buyer or other buying unit. Most all the other finance and accounting
machinations may be useful but they are not critical to the ongoing success of the business.
If the cash flows stop, the business stops.

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 3. Generalized estimates of returns: As marketers move to a new view of market brand equity,
it will be necessary for managers and investors to also develop new considerations for an
interactive and rapidly changing marketplace. It is unlikely the 400-500 year old accounting
concepts which have focused on accounting for inputs and outcomes and specific details
of each, in short, balance sheet accounting (Miller & Blair 2009; Staubus 1971) can or will be
relevant in tomorrows, rapidly evolving marketplace. Broader, more generalized estimates
of what determines success and failure of the brand and firm must be adopted. Estimates
using statistical ranges of change in financial value must become the calculus on which
success and failure are judged. That means a move away from reliance on a balance sheet
structure and more focus on forecasts, estimates and potentials than the traditional over
the shoulder calculations which are already history. Those will be the new norm for
financial purposes.
4. Continuous value adjustment -The argument is that market brand equity is best understood
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today at the market level, (Bendixen et al 2004) and that likely will be the base for some
time to come. Thus, we must measure actual brand sales and the resulting net income
flows to the brand owners as closely as possible. These, of course, will be continuously and
constantly changing based on marketplace variations many of which will be outside the
control of the marketer. (Kapferer 2012; Ataman et al 2010) Clearly, market brand value
and the resulting cash flows are a bundle of elements ranging from product costs to
distribution charges to royalties and discounts, promotional events and on and on. Trying to
unbundle these costs is a Herculean task which is yet to be solved. We suggest that initially
simply aggregating those net cash flows to the firm on a rolling daily, weekly or monthly
basis will be the most practical approach for the near term.
5. Behavioral data: It is becoming increasingly clear that consumer behavioral data will be the
base for all marketplace exchanges going forward. Thus, it is what buyers actually do, not
how they feel or what they say that determines marketplace success for the branded
business. While there is much value to understanding how consumers/customers think
about and consider brands and branding, until those thoughts and considerations occur in
the marketplace, they are nice to know but relatively useless to the marketing
organization in terms of market brand equity measurement.
6. Forward looking. Today, most brand equity financial measures are based on historical data,
that is, creating a snapshot of the past. To properly manage the brand, the manager must
have some idea of what might occur in the future. Thus, brand managers must move from
Return-on-Investment (ROI) to forecasting what returns might be generated in the future
based on some level of financial investment. That or those can likely be developed through
various forms of marketing estimation predictive models such as Markov Chains or the like.
(YOUR Z cite) One must acknowledge that all brand investments are based on assumptions
of some future returns. Calculating what happened yesterday or last month or last year,
however, is of little value to the operating manager today since he/she can do nothing
about the result. Given this forward-looking requirement, most likely brand and marketing
managers will have to move to some type of actuarial approach rather than relying on
todays accounting methodologies.
7. Cash flows: The easiest way to determine true market equity for the brand will be to
measure the changes in the actual net cash flows of the individually branded businesses

9
 over time. Having a base model will be critical (see discussion below) to these forecasted
cash flows. The argument is that cash flows are the only true value of the brand since that is
what consumers have demonstrated they are willing to pay in an unfettered marketplace.
Further, these cash flows include all the marketing variables that cannot even be known or
recognized given the complexity and volatile nature of the marketplace. Our initial
suggestion is the use of generalized risk models (McNeil & Wendin 2007) although other
methods may appear in the future.

These, we believe will be the basic building blocks for the determination of MBE going forward.

B. A Scenario Illustration of the Process

To illustrate the process proposed, a simplified conceptual scenario has been developed. While no
calculations are included, the general format of the process should be evident.
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1. Base Data

The process would begin by determining the external net cash flows generated by the branded
business unit over the past three fiscal years. These are the net funds which were delivered back to the
brand owner. Net cash flows are defined as the net income generated by the entire branded business
which has been created by brand activities and become available to the brand owning firm. In other
words, this is the net income flow and is a summary of all funds generated by external sales less the cost
of generating those sales and all other relevant costs. Once this three year base is created, it would be
continuously maintained and updated. It would provide the yardstick against which future calculations
would be determined.

In addition to the new returns accruing to the firm, historical total brand business investments
made in the brand could also be estimated/calculated. That would include all expenses involved in
producing, distributing, monitoring and managing the branded business. It should also include all
management and transfer fees, general administrative costs and the like.

The difference between gross sales income and the operating costs would provide the base case
for determining the initial market brand equity for each of the branded business units controlled by the
firm.

2. Forecasting Future Net Cash Flows Generated by the Branded Business

Using suitable forecasting tools and methodologies, including actuarial approaches, a forecast of
a range of net future income flows the brand business might generate over the next three years would
be developed. These would be based on existing investments and spends which would produce a
variety of potential investment-return scenarios. One possible approach is the testing of these various
investment scenarios against predictive models using Markov Chains or other suitable forecasting
techniques. (Pfeifer & Carraway 2000; Stya & Smith 1964) Note: At this point, we are not interested in
balance sheet details but in the general managerial factors from which decisions can be made. These
would provide the range of these future net incomes that would be returned to the branded business
owner based on these various assumptions.

3. Averaging the New Income Flows

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 A three year rolling average of the net income flows generated by the branded business would
be taken as the market based value of the unit or its MBE. This average could then be used as the test
case to determine future estimates. Those would provide a range of market brand equity estimates and
would form the base discussed in 1 above.

4. Stating the Market Brand Equity of the Branded Business Unit

Using these calculations, and based on the net cash flows generated in the past by the branded
business unit, senior management would have a much better estimate of what an increase or decrease
in brand business funding/spending might return than the current system of historical ROI snapshots.

5. Monitoring Market Brand Equity of the Branded Business Over Time

Since branded business sales and the resulting net income flow volume could be
calculated/estimated (similar to a commodities market) and made available on an almost daily basis,
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and using various data smoothing techniques, the current and fluctuating value of the market branded
business equity could be calculated. Using this approach, managers could also adjust returns to such
things as currency fluctuations and other financial changes. It would thus be possible to determine the
branded business market equity level on an ongoing basis. That would give senior management greater
control over expenditures on the brand business if they so desired.

Below is an illustrative graphic of the new market brand equity measurement scheme described
above.

[Exhibit 2 Goes About Here]

Branded Business Market Brand Equity

While this model is quite general, it does provide a view of what is being proposed and the
general approach recommended.

IV. Summary, Conclusions and Next Steps

In this conceptual paper, a new method of developing and determining marketer-based brand
equity MBE for an individual branded business has been developed, described and illustrated. While
there are numerous details to be developed and included in the final model, the concept seems relevant
and the logic appears strong. There are, of course, a number of details that should be considered and
which should be included in the final approach.

A. Strengths of the Approach

It is forward-looking, that is, it is possible to estimate a range of the true MBE (market brand
equity) of a branded business unit based on actual, demonstrable, marketplace values of the
brand.
It is based on actual market data, not on estimates of extraneous factors or expert judgment.

11
 An ongoing estimate of the MBE is generated each time the calculation is made, thus adding
currency to brand value measures which are generally undertaken only in situations where the
brand business is being bought or sold or where the brand owner is considering substantial
changes in the business.
It is much more flexible, current and useful than existing methodologies.
It gives senior management greater control over the investments made in various brand
businesses and a greater understanding of what those incremental investments might or could
create than the present systems.
It is totally transparent to all involved in brand decisions.
It provides a broad and varied number of new research areas for both academic and industry
research.

B. Weaknesses of the Approach

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It is new and untried, i.e., it is a conceptual model.

It moves the financial decisions on brand business investments out of the hands of operating
managers and puts it in the hands of senior management.
It requires that the new and somewhat novel methodologies be developed and tested.

There seems to be little question that the current techniques and methodologies being used to
calculate/estimate brand equity at various levels are inadequate for todays marketplace. While this
suggested approach deals with only the market brand equity (MBE) of branded business unit, it might
well serve as a model for other approaches still to be developed.

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Don Schultz is a Professor (Emeritus-in-Service) of Integrated Marketing Communications at

the Medill School, Northwestern University, Evanston, IL. He holds a BBA from the
University of Oklahoma and MA and PhD from Michigan State University. He is President of
Agora, Inc., a global marketing, communication and branding consulting firm. Schultz is
author/co-author of 28 books and 150 trade, academic and professional articles. He is also a
featured columnist in MARKETING NEWS and MARKETING INSIGHTS

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